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The National Confederation of Employers of the of

Key constraints on the business environment in Moldova

Chisinau, 2013 Contents: Acronyms...... 3 Executive Summary...... 4 Recommendations...... 7 Introduction...... 9 Political elements...... 11 1. Peace and political stability...... 11 2. Good governance...... 14 3. Social dialogue...... 20 Economic elements...... 24 1. Enabling legal and regulatory environment...... 24 2. Physical infrastructure...... 37 Social elements...... 40 1. Education, training and lifelong learning...... 40 2. Labour force...... 41 3. Labour Code and Social Protection...... 45

International Labour Organization

This publication has been published with the financial support of the (Bureau for Employers` Activities of the) International Labour Organization. The responsibility for the opinions expressed in this report rests solely with the author. The International Labour Organisation (ILO) takes no responsibility for the correctness, accuracy or reliability of any of the materials, information or opinions expressed in this report.

2 Acronyms

AEI Alliance for NACP National Agency for Competition Protection CC Competition Council ILC International Labour Conference CSIR Center for Strategic Investigations and Reforms NCCCN National Commission for Collective Consultations and Negotiations NECM National Employers’ Confederation of Moldova NTCM National Trade Unions Confederation of Moldova EESE Enabling Environment for Sustainable Enterprise GEA Program “Efficient Enterprise Administration” IDIS Institute for Development and Social Initiatives SME Small and Medium Enterprises IOE International Organization of Employers ISS Institute for Security Studies MEC Ministry of Economy ODIMM Organization for Developing Small and Medium Enterprises ILO International Labour Organization PARE 1+1 Program for Attraction of into the Economy GDP PNAET National Program for Economic Mobilization of Youth TIC Information and Communication Technologies WEF Economic Forum

3 Executive Summary

This report assesses key constraints to directing investments. Redressing Moldova’s the development of private businesses in rankings in international business along with Moldova in eight key areas: (1) peace and good governance ratings should become political stability, (2) good governance, (3) social an immediate priority for the Moldovan dialogue, (4) legal and regulatory environment, Government. (5) competition, (6) physical infrastructure, (7) In the same time, redressing the country’s education and training of the labour force, and international image without properly fixing (8) labour code and the protection of human the economic realities is simply impossible. capital. The assessment was done using In this regard, the perceptions of Moldovan the secondary analysis of existing data and enterprises concerning current business by comparing Moldova with a number of conditions are, again, negative and in most of countries. The primary data gathered during the cases quite aligned with the international the business survey undertaken in April – May ratings. 2013 with about 200 Moldovan enterprises of various sizes, locations and sectors of activity Political instability seems to generate was also used. particularly deep concerns among Moldovan enterprises. It is likely that because of the The countries chosen for comparison are fact that the survey had been conducted in a , , , and period of political and governmental crisis, the . These have been chosen considering absolute majority - 83.9% - of the participating a number of criteria such as geographical businesses have stated that the periods of proximity, common historical developments political instability troubled very much the and their economic similarities in the recent development of Moldovan enterprises. Indeed, past. The secondary data used in this report during the undertaken business survey, this show that Moldova performs consistently has emerged as the most problematic factor, worse than any other comparator country in emphasizing that the dysfunctionality of key almost all dimensions assessed. This is a rather state institutions during periods of political disappointing finding, considering the fact turbulence has a direct negative influence on that in order to enter a more sustainable path of these companies. economic development, Moldova desperately needs more investment capital than it currently This in turn, is reflected in the level of their has at its disposal. Foreign direct investments trust in state policies. More than 78% of are the only available source that could provide the respondents regarded the legal and the necessary investments; however, investors regulatory framework of the Republic of have been easily scared away from Moldova Moldova as failing to foster the operation and and chose other countries to invest in. In this development of enterprises. The exact same regard, the poor quality of governance and share of companies claims that corruption and that of the business environment as a result of bribery are major barriers for business activity this poor governance have an essential role on in Moldova. About one third of respondents 4 (33.2%) claim that enterprises similar to theirs burden, which ranked second in the top have to bribe “frequently” or “systematically” of problematic factors, right after political in order to solve various problems in their instability. This is regarded as a strong or very relations with supervisory authorities. strong constraint by 68.8% of the interviewed Moreover, more than two fifths of respondents businesses, especially by those located in the state that the Government is not sufficiently regions. A similar perception, although not dedicated to tackling corruption. so vastly spread (52.2%) has been recorded in It is also relevant that most people (over 70%) relation to the level of shares for state social perceive that the Government is insufficiently and health insurances. . cooperative with its dialogue partners Competition is another of concern representing the business environment. for Moldovan companies. One third of the Probably that is why around 4 out of 5 surveyed companies believe that there are companies believe the social dialogue carried anti-competitive practices in their sectors, a out through the tripartite committees is view particularly spread among micro- and inefficient, may that be at the national, sector small enterprises. At the same time, more or territorial level. than 40% of businesspeople regard the anti- Overall complex and unstable regulations trust legislation as inefficient in combating affecting Moldovan companies require a lot or controlling this phenomenon. Another of time and professional qualified efforts from worrisome figure, 55% of the respondents the part of enterprises in order to be dealt believe that the current legal framework is with. More than 62% of managers or owners disadvantageous for small enterprises. And as of the interviewed enterprises believe that the a final remark in the competition area, almost time spent to comply with the Government’s 60% of the interviewed companies believe regulations is a major problem for the that political connections are needed in order enterprise, with this problem being particularly to be able to benefit from governmental severe for companies in the regions. support programs. What is particularly striking and somehow While in international comparison, the quality contradicting other studies, is the fact of the Moldovan infrastructure may not look that almost 60% of the interviewed particularly bad, the domestic perceptions businesspeople believe that in Moldova it are troublesome: 72.2% of the surveyed is fairly easy to obtain licenses, permits and enterprises report significant costs incurred by authorization for businesses, while at the the enterprise because of the underdeveloped same time, 63.4% of respondents state that or inappropriate shape of the physical the general rules for issuing these licenses, infrastructure. permits and authorizations in Moldova only Coming to the researched social elements, meet the minimum standards of quality and one of the most striking information is that transparency.. vocational education gets a merely 10% of Fiscal administration, including the calculation the total funding allocated for education, and recording, the payment of taxes, as well as which is not enough to modernize the system the reporting have been identified as the most and to train specialists with skills relevant important constraints for the development of for the labour market. According to the EESE enterprises, according to 54% of the sampled survey, almost half of enterprises encounter enterprises (especially the newly-started ones). difficulties on a frequent or even systematic basis, when it comes to hiring staff with the Therefore, a huge constraint for the desired competencies and skills. Paradoxically, development of enterprises is the fiscal although the shortage of skilled workforce is a 5 constraint for over 46% of companies from our or acts of corruption, are recognized widely sample, a majority of 57% of business do not present phenomena within Moldova’s allocate financial resources for training. business environment. It is very important to The business sector’s opinion on the adequacy focus on the elimination of these constrains of the labour legislation is remarkably split: half that harm the enterprises which conduct believes that provisions of the labour code, their activities honestly, in compliance with particularly those relating to employment, the legal provisions, and that distort their remuneration and dismissal, are not sufficiently competitiveness when opposed to the actors adjusted to the market economy needs, of the informal economy. whereas the other half believes there are is Moreover, we should not forget that the no problem with the labour legislation. This in quality of the business environment in itself does not mean that labour code should Moldova depends not only on the state not be improved. Moreover, it should ensure a and the governmental policies, but on the fair balance between the rights of employees representatives of business as well, on their and those of employers. Thus, it should allow professionalism and honesty, on their actions companies to hire the best workers and to and accountability, both in their relations easily let go those that fail to perform according with their partners and clients, as well as in to the standards contractually agreed upon. those with the employees, the state and the The informal economy, including hiring community. without contracts, the double accounting, tax evasion, and last but not least, the favouritism

6 Recommendations

The most important problems and constraints business associations on a more frequent that hinder the development of businesses in and even systematic basis, when it the Republic of Moldova, as identified in this comes to the adoption of public policies study can be removed or mitigated through a that affect the business environment. series of complex and correlated efforts with the Taking into account these views of the government. Consultation with social partners business community will enhance their and especially with the representatives of the engagement, better policy making business community – CNPM - is essential in and their responsibility in relation to assisting the government to get things right community problems. and enable a proper business climate. 4. Ensuring a transparent, predictable and Below we present a series of measures that non-inhibiting regulatory environment need to be adopted and implemented in order for private initiatives. Moreover, the to eliminate the above identified constraints. equitable application of the regulatory framework should be ensured, so that 1. Depoliticize and ensure the an excessive burden not placed upon accountability of governmental enterprises carrying out their activities institutions by a systematic monitoring in compliance with the legal provisions. from the social partners and the civil society. 5. It is mandatory to simplify the tax and customs administration, perhaps leaving 2. Eradicate the corruption phenomenon out the “taxing at all costs” paradigm in within state institutions by rendering order to facilitate trade and commerce. transparent and accountable the This would in turn lead to the extension procedures for issuing permissive of the tax base and therefore to the documents for business, by fostering increase of budget revenues, while also the central public administration boosting the investment environment, reform, by implementing and enforcing which is currently an absolute priority meritocratic principles in all public for the Republic of Moldova. institutions, by increasing the wages of competent public servants and by 6. Ensuring a free and fair competition in all implementing IT tools in the deliverance sectors of the economy by: of public services. –– eliminating the current entrance 3. Foster an efficient, genuine and barriers to new markets, for more regular tripartite dialogue involving efficient and innovative companies; representatives of employers’ and –– eliminating political favouritism in workers’ organisations at national the allocation of state aids available and regional level. In particular, the to enterprises; Government should consult with the –– a full and efficient functioning of the

7 Competition Council, independent and potential employees, including of the political and economic elites through ensuring tax deductibility of of the country; training expenditures, in accordance –– reducing the share of informal with international best practices in this economy; area. 7. Modernize the physical infrastructure 9. Adapt the Labour Code to the economic by using the road fund efficiently, realities of the country, by easing by including more transparent and restructuring procedures and by allowing depoliticized tenders when it comes companies to replace unproductive to the rehabilitation of roads or other employees with the best ones, which infrastructure elements. The budget in consequence could stimulate the allocations for the modernization of investment and business environment local infrastructure (access to water within the Republic of Moldova. supply, electricity, gas, access to roads 10. Increase the efficiency of public etc) should be increased, thus stimulating procurements, by properly prioritizing private, foreign or local investments. public expenditure, by winding down 8. Develop the vocational education and the entry barriers for tenders and by training in the country through a better ensuring an optimal balance between correlation with the economic realities price and quality, with the elimination and especially with the skill demands of the legal stipulation granting a strong of the labour market. Consultation with advantage to offers with the lowest business community to this regard price. Additionally, it is necessary to would be of particular importance. In strengthen the monitoring of project the same time, companies should be implementation, especially at the local stimulated to participate more actively level. in the process of training their current

8 Introduction

The National Confederation of Employers adequate social protection; (17) responsible of the Republic of Moldova (Confederatia stewardship of the environment. This is the Nationala a Patronatului din Republica framework for the ILO’s work on enterprise Moldova - CNPM) is the most representative development that CNPM fully abides to. employers’ organization that is legally Considering its institutional mission, the CNPM empowered to promote and defend the decided to use the Enabling Environment for legitimate interests of its members in their Sustainable Enterprise (hereafter referred to as relationship with public authorities, trade “EESE”) methodology developed by the ILO to unions and other legal entities. The CNPM assess the environment in which businesses was established on 27 February 1996 by five start-up and grow. The methodology has been founding members and it currently consists designed to help employers’ organizations of 30 members among which 14 employers’ which are members of the ILO to assess federations and employers’ associations, and and improve the enabling environment for 16 large enterprises. It is estimated that the the promotion of sustainable enterprises. CNPM represents a total of 5000 enterprises Specifically, this methodology helped CNPM that give employment to more than 450,000 to identify constraints in the development employees. CNPM is also a member of the of sustainable enterprises, and to formulate International Organisation of Employers (IOE) advocacy and reform proposals that can be The International Labour Conference (ILC) used to render dialogue with governments in 2007 unanimously endorsed a resolution more effective. describing the framework for sustainable This document represents the result after enterprise growth. This framework outlines applying the EESE methodology to the 17 pillars of a conductive environment environment in Moldova. In order to evaluate for sustainable enterprise growth. These this national business environment using the pillars are: (1) peace and stability; (2) good EESE methodology, the CNPM has hired the governance; (3) social dialogue; (4) respect Independent Think-tank EXPERT-GRUP, in order for universal human rights and international to conduct the research on the key current labour standards; (5) entrepreneurial culture; constraints on the business environment that (6) a sound and stable macroeconomic policy CNPM will then develop into constructive and good management of the economy; (7) policy approaches capable of wide support. trade and sustainable economic integration; (8) The overarching goal of this work was to an enabling legal and regulatory environment; widen CNPM’s policy portfolio in an evidenced (9) the rule of law and secure property rights; based way. In broad terms, a number of steps (10) a fair competition; (11) access to financial have been followed in order to reach this services; (12) physical infrastructure; (13) ICT; output: focus group meetings have been (14) education, training and lifelong learning; held to determine key priorities for research (15) social justice and social inclusion; (16) an work, CNPM’s Board of Directors approved 9 key areas of research, a national survey has provide an evidence base for policy reforms been conducted based on representative for an environment more conducive to the sample (face-to-face interviews) to examine promotion of sustainable enterprises in key issues for business as confirmed by CNPMs Moldova. In particular, the report will support BOD, secondary data have been collected the CNPM to: and analysed and this report combining the •• present solutions for the problems primary (survey) and secondary data has been identified in the Report in order to developed. enable an environment for the creation The overall sample of surveyed companies of sustainable enterprises in the Republic consisted of 205 enterprises, which were of Moldova; randomly selected from the list of active •• strengthen its role as strong policy actor enterprises in the Republic of Moldova. capable of providing policy makers Most of the respondents were company arguments that can contribute to the directors (managers) or owners. The data were policy making process; disaggregated by the size of the interviewed •• effectively represent its members in the enterprises and their location – in the capital dialogue with relevant stakeholders; city (67%) or outside the (23%), •• focus its Agenda on tangible policies according to the distribution of enterprises at that can reasonably expect government national level. Most of the enterprises studied action by identifying the ‘specific’ key (69%) have been in business for more than constraints to enterprise development 10 years, and only 3 units were incorporated and employment creation; within the past 3 years, falling in the start- ups category. As for the size of the studied •• present government with empirically enterprises, 44.9% were micro-enterprises, sound proposals for policy or regulatory with up to 10 employees, 43.4% were small change; enterprises with 11 to 50 employees, and •• have proactive, constructive and time 11.7% of them were medium-sized and large bound agenda attracting wide support enterprises, with over 50 employees. and engagement. The report will be used to help with CNPMs policy agenda, to stimulate debate and to

10 Political elements

1. Peace and political stability Following the violent outbreak in 1992, Russian troops arrived in the region to support the Peace and political stability are key conditions Transnistrians in defeating the Moldovan forces. for the creation and development of The conflict ended in a cease-fire in the summer sustainable enterprises. A three-party pro- of 1992, when signed a peace deal on European coalition government known as behalf of the secessionist territory and was the Alliance for European Integration (AEI) established as peacekeeper.5 Still today, Russia has governed Moldova since 2009, following maintains troops in the region, a contentious a disputed election and civil unrest. The main point in peace talks.6 opposition party to the AEI is the Communist Party, which is less supportive of a strong This unsettled conflict raises the country’s European partnership, advocating rather risks in international financial and investment for increased relations with Russia.1 In 2009, ratings. The impact the conflict has on the Moldova experienced controversial and socio-economic situation on both banks of tense parliamentary elections where no party the Nistru () has been identified by received enough seats to elect a president. experts as a key factor that is slowing down Because the Communist Party failed to gain the development of Moldova- and enough votes to appoint the President, the that is exacerbating the levels of poverty and oppositional parties combined to form the labour emigration. The foreign investment that AEI.2 The elections were disputed and were could be available in connection with the 9th followed by civil unrest in the country.3 Pan-European Transport Corridor and other international transport corridors cannot be One of the main challenges for political stability accessed currently without a joint agreement in Moldova is tension with Russia, specifically from Chisinau and , as these corridors with regards to the eastern region of the pass through the right-bank of Moldova and Republic of Moldova, a thin strip of land along Transnistria.7 The resolution of this conflict the border of Moldova and . The official between Moldova and the secessionist languages in Transnistria are Russian, Moldovan territory was noted by the in and Ukrainian, though tensions abound 2003 as being the single largest barrier to the surrounding whether Moldovan should in fact country’s political and economic development, 4 be included. In 1992, this was the location as well as its fundamental cause of poverty.8 of the Transnistrian War, when the region 5 Pajalic, M. 2008. Capacity Building for Peace? The European attempted to secede from Moldova, fearing Unions’ Impact on Security Sector Reform in Moldova and that the country would reunite with Romania. . The University of British Columbia (Vancouver, ), April. Accessed 20 May 2013. 6 BBC. 2011. 1 Institute for Security Studies. 2013. Moldova’s political crisis. 7 Cristescu, R. and Matveev, D. 2011. Peace building and ISS alert issue, March. Accessed 4 May 2013. Conflict Prevention in Moldova: the role of the EU. Civil Society 2 Freese, Susan. 2010. Political Instability: Moldova’s Struggle Dialogue Network of the European Commission. for Democracy. IREX, September. Accessed 4 May 2013. 8 European Union. 2003. Fifth Meeting of the Co-operation 3 Institute for Security Studies. 2013. Council Between the European Union and the Republic of Mol- 4 BBC. 2011. Trans-Dniester profile. BBC News. Accessed 24 dova, 7432/03 (Presse 80). (Brussels), 18 March. Accessed 5 May May 2013. 2013. 11 Figure 1. Scores for political stability and absence of violence in Moldova and comparator countries, period 2006-2011 Political Stability and Absence of Violence

1.40 1.20 1.00 0.80 Moldova 0.60 Bulgaria 0.40 0.20 Estonia 0.00 Lithuania Scale of -2.5 to 2.5 of -2.5 to Scale -0.20 Romania -0.40 Slovenia -0.60 -0.80 2006 2007 2008 2009 2010 2011 Note: Data on “Political Stability and Absence of Violence” assesses countries’ political stability on a scale from -2.5 to 2.5 where higher values correspond to better performance. Source: , Governance Matters database. In international comparison, Moldova fares It is worth mentioning here that, though the quite poorly as far as political stability is indicator also refers to violence, nevertheless concerned (Figure 1. Scores for political such manifestations were not noticed after stability and absence of violence in April 2009, when the political forces of Moldova and comparator countries, period pro-European orientation came to power. 2006-2011Figure 1) as reflected by negative Although both political groups as well as the figures from 2006-11, with some improvement entire society are divided in two opposing from -0.6 in 2009 to -0.13 in 2011. Among groups – pro-Russian and pro-European – still the countries used for comparison, Moldova in Moldova (without Transnistria) there aren’t reflects the least political stability and absence any ultra-radical political forces, neither on of violence since 2006. the left political wing, nor on the right one. No Despite the somewhat negative findings in radical social-political violent manifestations regards to Moldova’s political stability, the were noticed lately. country has made improvements in recent However, a of political crisis followed years. In 2013, the European Union Institute in early 2013 when the governing alliance broke for Security Studies praised the country as down and, as a consequence, the Government potentially the best example of successful was dismissed. These political developments transformation under the EU’s Eastern significantly affected the morale of Moldovan Partnership. The EU has shown its commitment entrepreneurs, and reflected into the results of to the political and economic development of the EESE business survey, carried out during Moldova through significant time and resource the same period. The absolute majority - investment.9 In addition, the Government of 83.9% - of the participants who participated in Moldova is aware of the close links between the survey stated that the periods of political their economic and business development, instability affected the development of and promotion of peace and political stability Moldovan enterprises. It is interesting that this throughout the country.10 perception is more common among the newer 9 Institute for Security Studies. 2013. enterprises compared to the older ones. Thus, 10 . 2012. Statement by H.E. Mr. , . UN (Republic of Moldova), 26 September. 93.2% of the respondents from enterprises Accessed 27 May 2013. 12 established after 2005 declared to be affected regulations for the competent institutions by the country’s political instability compared which hold inspection and control functions, to 78.2% from those established until 2000. simultaneously with personal or institutional At the same time, political instability was accountability for the violation of these rules. identified as the most problematic factor for For example, according to the Agreement of the the development of Moldovan enterprises (see recently established Pro-European Government Table 1). Such a perception is caused by the Coalition, the deputy ministers should come high politicization of Government institutions from the same party as the ministers. Hence, that are involved directly in business regulation, if a ministry is given to another party, then the such as the State Tax Inspectorate, Customs deputy ministers will be changed together Service, and others. Any change in the with the minister and, basically the political Government is reflected, as a rule, in changes reshufflings will reach as far as the heads of of the management of these structures and divisions and other decision makers. in its regulations. This situation enhances the However, in spite of the Government’s instability of the legislative and normative instability or of other problematic factors framework. The dynamics of the changes in within the business environment, the regulations make it impossible to respect the entrepreneurs remain quite optimistic about newly appeared norms, which occasionally do the evolution of their business this year - not get published in the Official Monitor of the 42.4% of the respondents estimate that it will Republic of Moldova. In this case, it becomes be better than in 2012 and only 26.3% believe necessary to create tougher and unique it will be worse.

Table 1. The top most problematic factors for business development in the Republic of Moldova* % of % of Total Total Factors Cases Sum Total N** Sum % 1 Political instability 86 42.0 66.3 32.3% 100 2 High fiscal burden 76 37.1 55.5 27.1% 100 3 Shortage of properly trained labour force 58 28.3 44.3 21.6% 100 4 Poor access to finance 46 22.4 39.3 19.1% 100 5 Corruption and bribery 41 20.0 31.0 15.1% 100 6 Extended informal (“shadow”) economy 41 20.0 30.5 14.9% 100 7 Macroeconomic situation 38 18.5 28.5 13.9% 100 8 Inefficient Government bureaucracy 35 17.1 27.5 13.4% 100 9 Poor governance 34 16.6 25.5 12.4% 100 10 Underdeveloped infrastructure 32 15.6 24.5 12.0% 100 11 Inequitable fiscal management 37 18.0 23.8 11.6% 100 12 Underdeveloped business culture / contractual 30 14.6 21.5 10.5% 100 irresponsibility 13 Inappropriate foreign exchange policies 14 6.8 10.5 5.1% 100 14 Inappropriate business ethics 8 3.9 5.8 2.8% 100 15 Difficulty to get the needed licenses, permits and 5 2.4 3.3 1.6% 100 authorizations 16 Overly-restrictive Labour Code 3 1.5 2.8 1.3% 100 Note: * - The first choice - 1 point; the second - 0.75 points; the third - 0.5 points;) ** - N total = 205 Source: the EESE business survey results;

13 2. Good governance journalism, and further protect judges, prosecutors, and shield officers from the Good governance, absence of corruption and Centre for Combating Economic and efficient institutions foster entrepreneurship Corruption (CCECC) from political pressure. and promote private sector growth and The country relies on the National Anti- development. According to the 2012-13 WEF’s Corruption Centre to investigate corruption Global Competitiveness Report, corruption allegations, and while nominally independent, is the greatest challenge to doing business the Centre has received critiques for having 11 in Moldova. Since 2009, the Government close ties to one of the parties forming the of Moldova has launched significant ruling coalition.14 reforms in the areas of democratization, freedom of the media, economy, policy, Based on secondary data, one can say and education. However, two of the most Moldova does not perform well in this problematic factors still hindering growth in area. The international indicator “Control of Moldova are corruption and judicial reform.12 Corruption” (Figure 2) measures the extent to The prevalence of corruption and lack of which public power is exercised for private transparency throughout public institutions gains and the extent to which the state is especially, stifle economic growth and captured by elites and private interests, on a enterprise development in the country.13 scale from -2.5 and 2.5 where higher values reflect better performance. Moldova performs In 2012, passed the National notably worse than the other countries used Anticorruption Strategy for 2011-13, intended for comparison, reflecting a level of -0.62 in to increase transparency of public institutions 2011, while the second poorest score in the and public finances, encourage investigative same year, that of Romania, was -0.2. Slovenia 11 World Economic Forum. 2012. The Global Competitiveness and Estonia registered the highest scores at Report 2012-2013. WEF (Geneva, ). Accessed 4 May 2013. 0.93 and 0.91 respectively in that year. 12 Institute for Security Studies. 2013. 13 Freedom House. 2012a. Nations in Transit 2012 – Moldova. Nations in Transit 2012. Accessed 4 May 2013. 14 Institute For Security Studies. 2013.

Figure 2. Degree of control of and comparator countries, period 2006-2011 Control of Corruption

1.2 Moldova 1 Bulgaria 0.8 Estonia 0.6 Lithuania 0.4 Romania 0.2 Slovenia 0

Scale of -2.5 to 2.5 of -2.5 to Scale -0.2 -0.4 -0.6 -0.8 2006 2007 2008 2009 2010 2011 Source: World Bank, Governance Matters database.

14 The “Corruption Perceptions Index” reflects a Nonetheless, Moldova registered the lowest similarly negative picture (Figure 3). On a scale score among the six countries compared from 0 (“highly corrupt”) to 10 (“highly clean”), with in the latter year. Bulgaria registered Moldova has slightly improved since 2007, the second lowest score at 4.1, while Estonia moving from 2.8 in that year to 3.6 in 2012. registered the highest at 6.4. Figure 3. Corruption perception index in Moldova and comparator countries, period 2006-2012

Corruption Perceptions Index 8 Moldova 7 Bulgaria 6 Estonia 5 Lithuania 4 Romania 3 Scale of 0 to 10 of 0 to Scale Slovenia 2

1

0 2006 2007 2008 2009 2010 2011 2012

Source: Transparency International

Another major hindrance to economic growth projects caused in part by the evasion in Moldova is the relationship between of tenders from competitive procedures; corruption and the informal economy. It is inequity and unfair competition; reduced estimated that a substantial portion of the economic efficiency; and macroeconomic labour force is involved in informal market instability, specifically regarding the country’s and corruption-related economic activities, vulnerability to the financial crisis.16 and that the generated unrecorded incomes While Moldova shows marginal improvement 15 are non-negligible. ,The generated incomes in government services and activities over are unequally distributed, increasing the gap time, it still performs comparatively poorly between rich and poor, as corruption only (Figure 4). The indicator “Government functions to exaggerate social inequity and Effectiveness” measures the quality of public to target the most vulnerable social groups services, the capacity of the civil service and for exploitation. The negative economic its independence from political pressures, impact of this relationship includes increasing the quality of policy formulation and transaction costs, especially with regards to implementation, and the credibility of the small business activities and the increasing government’s commitment to such policies. In numbers of payments to obtain licenses; a range of values from -2.5 to 2.5 with higher discouraging investment and innovation; values indicating better governance, Moldova cost increase and worsened quality of public records low values below 0 over the period 15 Carasciuc, L. 1999. Corruption in Moldova: Macroeconomic 2006-11. Since 2007, Moldova has seen some Impact. Center for Strategic Studies and Reforms (Moldova). Accessed 27 May 2013. 16 Ibid. 15 improvement in this regard, moving from -0.8 over the period 2006-11, Moldova consistently in that year, to 0.58 in 2011. While Romania performs the poorest of the six countries used and Bulgaria also register low negative values for comparison.

Figure 4. Government effectiveness in Moldova and comparator countries, period 2006-2011

Government Effectiveness 1.5 Moldova Bulgaria 1 Estonia Lithuania 0.5 Romania Slovenia 0 Scale of -2.5 to 2.5 of -2.5 to Scale -0.5

-1 2006 2007 2008 2009 2010 2011

Source: World Bank, Governance Matters database.

“Voice and Accountability” indicator measures development. Indeed, since 2009, a series of the extent to which citizens participate in incentivizing provisions for business were selecting their government, as well as freedom removed from the national legislation (income of expression, freedom of association and a tax exemption for newly created enterprises, free media. On a scale from -2.5 to 2.5 with reducing the share of state social insurance higher values indicating better performance, contribution for the employees who raise the Moldova is the only country of the six used distribution towards the State Social Insurance for comparison that maintains values below Budget etc.). According to the opinion of the 0 over the period 2006-11. Nonetheless, the business environment, similar provisions are country has seen a positive improvement in yet to be re-included in the legislation, as this area over time, moving from -0.27 in 2006 methods to reduce the share of underground to -0.02 in 2011. economy and to extend the fiscal basis, The EESE business survey confirms most of accepting tougher sanctions for their violation. the trends identified through the analysis There are also negative opinions regarding the of secondary data. We present below the “interpretation and practical implementation most relevant findings of the survey, for each of laws and regulatory documents” in Moldova, component of the “Good Governance” pillar. which is seen as non-encouraging for 66.3% respondents. Around other 30% of respondents Trust in the state policies declared that they are not negatively affected by the practical enforcement of laws. In spite More than 78% of the leaders of the of legal provisions stating that the competent respondent firms regarded the legal and body for the interpretation of legal norms is regulatory framework of the Republic of the Parliament, the situations when the public Moldova as failing to foster the operation authorities through letters, instructions and and development of enterprises, compared orders intervene in this process are frequent. to the 14.6% who regard it as supporting the 16 It is also true that the legislative body, in spite opinion is mainly shared by businesspeople of several addresses to this subject is unable from Chisinau, rather than those outside to deliver timely responses in to all requests. the capital city, specifically those from new Measures to consolidate the capacities of the enterprises, established after 2005. This is Parliament in this regard are paramount. absolutely logical if we take into consideration that the concentration of businesses is larger in Corruption and bribery Chisinau compared to any other Again, more than 78% of respondents claim communities in the Republic of Moldova. that corruption and bribery are major barriers for the business activity in Moldova. This

Figure 5. Bribes and corruption as major obstacles for the entrepreneurial activity

Source: EESE sociological results

This highly spread perception of corruption in combating corruption are fed by the also influences the opinion regarding the experience of the business people, also by Government’s efforts to reduce it. Thus, 87.3% the severe lack of cases that reach the courts, of respondents state the Government is not and the default of important convictions on sufficiently dedicated to combating corruption, the articles of the Criminal Code. The lack of while other 7.3% assess it as being sufficiently relevant and sounding results in combating engaged. The efficiency of the competent this well-known phenomenon, which is bodies is seen similarly: 52.7% mention that dangerous for the country, suggests the the Government bodies with competencies in lack of willingness in this regard, both at the this area react inefficiently when they receive governmental and political level. The decision complaints from enterprises. Other 16.1% of makers are those who benefit the most from respondents consider that competent bodies acts of corruption and thus they are not willing are efficient in combating corruption through to give up these substantial benefits, even if cooperation with the enterprises. they are obtained against the law and to the All these perceptions related to the detriment of the enterprises, citizens and the omnipresence of corruption and the national economy. inefficiency of the responsible bodies About one third of respondents (33.2%)

17 claims that enterprises similar to theirs have to respondents, bribing is the only way to avoid bribe “frequently” or “systematically” in order the “administrative barriers” in the Republic to solve various problems in their relations of Moldova. This opinion is also wider spread with supervisory authorities. This opinion is among micro-enterprises, as well as enterprises shared mainly by micro-enterprises (up to 10 located in the capital city and start-ups. employees). At the same time, for 41.4% of

Table 2. Answers’ Distribution to the question “Do you agree that bribery is the single option to overcome the administrative obstacles in the Republic of Moldova?”, depending on the company size, % Do not Do not Number of employees Agree know/Not Total agree relevant Count 45 45 2 92 Firms with under 10 employees % 48,9 48,9 2,2 100,0 Count 33 45 11 89 Firms with 11-50 employees % 37,1 50,6 12,4 100,0 Count 7 15 2 24 Firms with more than 50 employees % 29,2 62,5 8,3 100,0 Count 85 105 15 205 Total % 41,5 51,2 7,3 100,0 Source: EESE business survey results

The analysis of some real cases when the of those who refused to express their opinion businesspeople are forced to offer bribes is higher compared to those who recognized revealed much more pessimistic opinions. In the phenomenon. the figure below we can notice that the share

Figure 6. Answers’ distribution to the question: “In which of the situations described below, the companies similar to the one you lead are forced to offer bribes (or to offer presents) and how frequently?

Source: EESE business survey results

18 Thus, we conclude that businesspeople almost the same score as “informal economy”. shall resort to bribes especially when they The analysis of the supervision authorities’ are controlled by tax authorities. The open visits during 2011 to the surveyed enterprises discussions with respondents revealed (figure 7) reveals that 64.4% of them were that the most frequent claims made by tax visited by the anti-fire inspection at least inspectors refer to the erroneous calculations once and 1.3 times on the average; 60.5% of the taxes by the enterprise, and that is why of enterprises were visited by tax inspector in such situations the accountants have to 1.77 times a year, on the average. The staff of “mellow” them with “attentions” and presents national anti-corruption centre honoured with to avoid the formal penalties. Regarding the their visit 16.6% enterprises during the year, presents or the so-called various “attentions” 1.32 times on average. It is interesting that - most of the respondents tend to view them respondents appreciate very seldom that these rather as “sign of benevolence” than a bribe visits would create considerable constraints whereas the accountants’ errors, as we will for them: only 7.3% of enterprises regarded see in the further analyses, are caused by the the tax authorities’ visits as a constraint. As complexity and, in particular, instability of the one of the respondents put it, “the inspectors tax regulations. visit the enterprise to discover problems that In the other situations listed in the cannot be noticed from the office, but when questionnaire, the frequency of bribes and the errors or irregularities are discovered by presents falls within the range of 18-25% of the managers themselves, it takes a lot of time the cases. to make an appointment with the specialists Corruption and bribery ranks the fifth in the of the tax inspectorate in order to solve the top of the most problematic factors for the emerged problems!” development of Moldovan enterprises, with

Figure 7. Frequency of inspections (2012) by various supervisory institutions

Source: EESE business survey results

19 Public procurement less frequently during the past years. It is interesting that mainly the larger and the Public procurement is a very specific area, older enterprises participate in these tenders, where the public sector meets the private rather than the micro-enterprises and the one. Almost 49% of the surveyed businesses start-ups. This can be caused by the banking said they never participate in the public guarantees, which are very imposing, as well procurement tenders. as the excessive documentation requested by Only 33.2% declared that they participated organizers in order to participate in tenders. in public procurement tenders more or

Figure 8. Participation of firms at public procurement tenders, depending on the number of employees

Source: EESE business survey results In order to direct corruption payments to public bargaining is fundamental for the achievement officials, subcontracts, procurement orders of effective, equitable and mutually beneficial or consultancy contracts or their employees outcomes for ILO constituents and for society or relatives, are often used. These methods at large. In Moldova, employers’ national and were used according to 31.2% respondents, international interests are represented by and 19.5% state they are used frequently. the Confederatia Nationala a Patronatului This reality is shared more frequently by din Republica Moldova (CNPM), which was respondents from Chisinau enterprises, rather established in 1996 and is a member of the than the ones outside the capital city. International Organization of Employers (IOE). At the same time, 39% of respondents perceive The CNPM unites five founding employers’ 17 the public tenders as non-transparent and organizations. Today, with its some 30 only 12.2% of them believe that the public members (collective and individual), CNPM tenders are usually won by the best bidders, represents employers hiring 90 per cent of without any illegal payments to benefit the the Moldovan workforce. On the trade unions’ responsible officials. side, the largest trade union association in the country is the General Federation of 3. Social dialogue Trade Unions of Moldova, which includes 25 industry federations. It inherited its position Social dialogue, together with freedom of association and the right to collective 17 http://www.cnpm.md/rom/. 20 and considerable resources from the pre- CNPM’s management revealed that indeed, in independence system and remains the the transportation, agriculture, construction dominating force in industrial and budgetary and ICT consultations and collective sectors. negotiations took place recently. Officially, a National Commission for The worst situation is attested at the local level Consultations and Collective Bargaining exists where local public authorities do not take in Moldova, which is a tripartite Council that an active role in the social dialogue, and the convenes on a quarterly basis or whenever companies are not interested in joining the necessary. The Council’s main function is to employers’ associations. provide a forum for tripartite discussions Annually, around 1300 collective work and in addition, to serve as the vehicle contracts are reported, to be signed at the through which social partners can submit level of economic unit. Their existence is draft laws regarding economic reform and largely due to enterprises which appeared in maintenance of social peace. According to the pre-independence period. However, due the social partners’ opinion, the authority of to the provisions in the labour legislation, this Council is undermined by the legislation, which extend the validity of these collective which does not grant many powers to this agreements to “no end,” the number of “live institution. Moreover, given the fact that it is collective agreements” is considerably smaller. led by the Government, the Council did not function during the recent political deadlock. Unfortunately, secondary data on social Nevertheless, some sectoral working groups dialogue in the sub-region tends to be scanty. created by the Council managed to function Specifically, for the “Enterprises Belonging to despite the political situation. A relevant Employer Organization” rate and “Collective example is the working group created after Wage Bargaining Coverage” rate, there is no 19 the initiative of the employers’ association on data on Moldova. The “Trade Union Density” the issues related to the labour legislation. rate measures the proportion of trade union As a result of these negotiations, a series members as a percentage of total employment. of amendments to the Labour Code were Moldova outperforms both countries for which elaborated, which are being currently data is available, Estonia and Romania, in 2007, examined by the Government and the with 26.8 per cent of the total non-agricultural Parliament. labour force holding trade union membership, compared to 21.4 per cent in Romania and 6.9 In Moldova, there are a many sector councils per cent in Estonia. “Cooperation in Labour- for collective negotiations and bargaining, Employer Relations” determines whether although in some sectors the trade unions lack labour-employer relations are confrontational negotiation partners. As these councils are or cooperative on a scale from 1 to 7 with led by the representatives of line ministries, higher values indicating more cooperation. they are not very efficient and often the Moldova performs notably well in this area, issues discussed at sectoral councils are not outperforming Bulgaria, Romania and Slovenia taken into account by the National Council. in 2012, with a value of 4.2. The world average In 2010, at the branch level, only 18 out of 30 for the same period was 4.3. trade unions signed collective agreements, at the territorial level only 18 out of 34 districts According to the results of the EESE business had structures of social partnership, and the survey, 17.1% of the sampled enterprises territorial commissions had managed to sign 19 The “Enterprises Belonging to Employers’ Organizations Rate” measures the number of enterprises which are members 18 only 8 Agreements. However, interviews with of employers’ organizations. The “Collective Wage Bargaining Coverage Rate” measures the number of employers that belong 18 Ciurea, C. 2011. to an employers’ organization. 21 are members of an employers’ association, There is a similar situation with membership predominantly located outside the capital to trade unions: the staffs of only 13.2% of the city. At the same time, there is an indirect surveyed enterprises are reportedly members relation between the number of employees of trade unions. It is interesting that about 2/3 of in the enterprise and its membership in an these enterprises are located outside Chisinau, employer’s association. Thus, only 7.6% of which is an indication that trade unions have enterprises with up to 10 employees are a higher presence in the enterprises outside members of employers’ associations, 22.5% the capital city than in the city. However, while of those with 11-50 employees and 33.3% of interpreting these data, we must consider those with over 50 employees. some particularities of the sample and of the It should be mentioned that CNPM did not survey. The fact that in a sample of randomly have the purpose to evaluate the number selected 205 firms, 17.1% have self-declared as of members from the sample, but only the being members of an employers’ association, association level with business environment which slightly exceeds the national level, can structures. It is also true that most often the be explained by the interest of the members employers’ associations are joined by medium of employers’ association to take part in and large enterprises, which can afford paying the survey, given the fact that it has been the membership fees. The participation rate in commissioned by CNPM. Overall, one out five these associations is larger in firms randomly chosen from the list accepted and decreases proportionally to the distance to participate in the study. Another aspect is from them. Currently, the CNPM makes efforts related to the absolute size of the groups (too to create and revive some territorial employers’ small) included in these questions in order associations. to consider the trends identified as valid, by crossing variables.

Figure 9. Membership in trade unions of the enterprise staff, by the enterprise location

Source: EESE survey in Moldova

22 The fact that they are not members of confirmed by the open discussions – is that employers’ association or trade unions does not their requirements and viewpoints on how to prevent enterprises from using social dialogue, settle certain problems related to the quality when necessary. Thus, 44.9% of respondents of business environment are totally neglected state that they use social dialogue whenever by authorities, in particular by the central necessary, other 17.6% use it periodically or ones. This opinion is greatly reflected in their seldom. But there are many enterprises - 31.2% appreciation of the cooperation between - which never use this instrument. the Government and their dialogue partners: When required to appreciate how efficiently about two thirds of respondents (65.9%) is social dialogue carried out through the regard it as insufficiently cooperative and only tripartite committees (employers’ associations 2.9% of them say that the Government is “quite - trade unions - authorities), an important share cooperative”. - 39-43% - of the interviewed businesspeople This is also confirmed by the fact that all the believe that this is rather inefficient, both at the initiatives to reform the National Commission national level, and at sectoral and territorial for Consultations and Collective Bargaining by levels. The fact that every second respondent the social partners (employee associations and avoided expressing his/her opinion on this trade unions) through changes to the 245 Law issue, proves a strong lack of interest in social of 21.07.2006 “regarding the organization and dialogue, regardless of its level (national, the functioning of the National Commission sector and territorial). We may hence for Consultations and Collective Bargaining, of conclude that the Moldovan entrepreneurs commissions for consultations and collective are either not interested or, even if interested, negotiations at the branch and territorial level” regard the work of tripartite committees as and the change of leadership paradigm of this inefficient in four of five cases. A widespread structure is blocked by the Government. opinion among Moldovan businesspeople -

Figure 10. Distribution of answers to the question “How efficient is social dialogue through the Tripartite committees (employers’ associations - trade unions - authorities)?”

Source: EESE business survey This perceived inefficiency of social dialogue are consulted quite frequently; hence a with the authorities is easy to understand, certain public-private dialogue at the level given that 66.3% of the respondents claim of enterprises exists. This, obviously, also that they were never consulted by authorities depends on the openness or interests of the during the decision-making process. However, business owners or managers. 15.1% of businesspeople claim that they 23 Economic elements

1. Enabling legal and regulatory allocates 0.3% of GDP annually to support environment SMEs, intends to establish a network of business angels and gives preferential treatment to Well-designed and clear regulations, including SMEs in government procurement (20% of total those that uphold labour and environmental government procurement with an exemption standards, are good for the promotion of from participation guarantees for SMEs). The start-ups and enterprise development. They draft law also foresees the establishment of facilitate formalization and boost systemic a Credit Guarantee Fund and names ODIMM competitiveness. The lack of transparency to manage the fund (annually replenished by and the cumbersome bureaucracy in Moldova government and donor resources).21 often hinder private enterprise formation and operation, and, even though starting According to secondary data, the country a business has been made easier in recent consistently reflects the weakest government years, the licensing process is still highly time- regulation and capacity to prevent corruption consuming.20 among all countries used for comparison. The “Regulatory Quality Index” measures the Moldova has made improvements in this ability of a government to provide sound regard over time. In terms of support to SMEs, policies and regulations for the promotion Law No. 206-XVI of July 2006 on supporting of the private sector on a scale from 2.5 to the SME sector sets out the main provisions 2.5, with higher values indicating better governing SMEs and the Organisation for performance. Moldova’s performance in this the Development of SMEs (ODIMM), as the regard has been poor and below 0, though the organization in charge of supporting SMEs country has experienced some improvement was established already in 2007. Most recently in recent years, shifting from 0.46 in 2005 to a new draft law on SMEs from December 2012 0.08 in 2011 (Figure 11). Among the countries has been issued by the Ministry of Economy, used for comparison, Moldova performs the which inter alia foresees an advisory council poorest, where the next lowest score in 2011 for SMEs, which is due to report annually to was 0.72 in Romania, and the highest score Government on its work. The draft law further was 1.40 in Estonia.

20 The Heritage Foundation. 2013. 21 Draft Law in Romanian on Ministry of Economy Website

24 Figure 11. Regulatory quality index in Moldova and comparator countries, period 2005-2011

Regulatory Quality Index 1.5 Moldova 1.3 Bulgaria 1.1 Estonia 0.9 Lithuania 0.7 Romania 0.5 0.3 Slovenia

Scale of -2.5 to 2.5 of -2.5 to Scale 0.1 -0.1 -0.3 -0.5 2005 2006 2007 2008 2009 2010 2011

Source: World Bank, Governance Matters database

The “Ease of Doing Business Index” ranks in 2008. Comparatively, in 2011 it took 22 days economies from 1 to 185, where a higher in Lithuania, and 6 in Slovenia. Data also show ranking reflects a regulatory environment that Moldova has improved in this regard over that is less conducive for business operations. time, moving up the ranking from 92nd place This index includes averages for 10 different in 2008. Nonetheless, relative to the countries areas. Though Moldova is ranked relatively used for comparison, Moldova was the lowest low at 83 out of 185 countries in 2012 (Figure ranked in 2012. Romania is the next lowest 12), it only takes 9 days to start a business in at 72, while Estonia ranks the highest of the Moldova, compared to 23 days in 2007 and 15 group on 21st position the same year.

Figure 12. Ease of Doing Business ranks for Moldova and comparator countries, period 2008- 2012

Ease of Doing Business Rank

2008 2009 2010 2011 2012 1

21 Moldova 41 Bulgaria Estonia 61 Lithuania

81 Romania Slovenia Rank out of 185 countries Rank out of 101

121

Source: World Bank, Doing Business project

25 The “Starting a Business Index” records the and on the extent to which they are complied officially required procedures to start and with by the enterprises management. More operate an enterprise and ranks countries complex and unstable regulations require accordingly. Moldova’s rank in this regard more time and professional qualified efforts worsened from 2011 to 2012, moving from from the part of the management of enter- 82 out of 185 countries, to 92 next year. All prises. Thus, 62.4% of managers or owners of countries used for comparison also fell in the surveyed enterprises believe that the time the ranking somewhat during this period. spent to comply with the Government regu- Lithuania reflects the poorest performance of lations is a major problem for the enterprise. the group in 2012 at 107, but relative to the This problem is even worse for the enterpris- other four countries, Moldova ranks low on the es located outside Chisinau (71.6% compared index. with 58.0% of the enterprises located in the The EESE survey analyzed in great details the capital city) perhaps due to the more acute legal and regulatory framework, and found shortage of qualified specialists and more they are partly in line with what previous limited access to specialized information and secondary data suggest, but also partly differ. services. In this context is relevant to mention We present below the main results of the that the Republic of Moldova is in the stage of survey for this component. transferring to European law, including to the one that aims at business enterprises, that Overall regulations is why the problems caused with complying with these unstable government regulations The quality and functionality of the Govern- will perpetuate for a while. ment regulations depend significantly on their clarity and stability for the implementers

Figure 13. Distribution of answers to the question “Is the time spent for complying with Government regulations a major problem for Moldovan enterprises?” by the enterprise size

Source: EESE business survey

26 Licenses, permits and authorizations permits and authorizations in Moldova meet the minimum standards of transparency and Although Moldova has the worst position clarity. These favourable perceptions could of all comparator countries for the “Ease of also be due to the implementation of the one- Doing Business” indicators, almost 60% of stop shop for the entrepreneurial activity, after the interviewed businesspeople believe that the approval by the Parliament, in July 2011, of in Moldova it is quite easy to obtain licenses, the respective law.22 permits and authorization for businesses and, at the same time, 63.4% of respondents state 22 Law no. 161 of 22.07.2011, regarding the implementation that the general rules for issuing licenses, of the one-stop shop in conducting entrepreneurial activity.

Figure 14. Distribution of answers to the following question “Do you think that in Moldova is hard or easy to obtain licenses, permits or authorisations for entrepreneurial activity?”, depending on the number of employees, %

Source: EESE business survey

For 36.1% of respondents, in Moldova it is quite problems for the international trade. Only complicated to obtain licenses, permits and 17.6% of respondents do not perceive these authorizations. This opinion is more frequent regulations as problematic. We note that 47% among the enterprises established after 2005, of respondents have not expressed their view as well as among the small enterprises, with on this. Supposing that only those who have 11-50 employees. international trade activities have expressed Fewer respondents – 49.1% - believe that their views (it is not possible to identify and to authorities apply the rules uniformly and group the enterprises researched according to impartially for all enterprises in Moldova, this criteria – involvement/non-involvement in when it comes to issuing licensing, permits international trade), it results that about 2/3 of and authorizations. However, 34.1% of the them consider that commercial and customs interviewed businesspeople have an opposite regulations create important difficulties for opinion. conducting international trade. “Services, professional activities and others” are the least According to 35.1% of the interviewed affected in this regard. businesspeople, the Moldovan trade and customs regulations pose important

27 Figure 15. Distribution of answers to the question “Do the trade or custom regulations create major problems for foreign trade activities to the Moldovan firms?” depending on the type of activity, %

Source: EESE business survey

The process of obtaining certificates of origin Payment of taxes and mandatory and other documents necessary for the export insurance contributions of goods has been regarded as difficult by 20% of respondents, while other 65.4% have not The fiscal administration, including the expressed their views on this. For only 18.5% calculation and recording, payment of taxes, of the interviewed it is difficult to obtain the reporting, etc. is an important constraint for the necessary documents for import of goods, development of enterprises in the opinion of while other 31.7% believe this is not a very 54.1% of sampled entities. However, for 44.4% complex procedure. Obtaining licenses, permits of them the fiscal administration is not a very and authorizations ranked 16th of all 17 factors stressing constraint. Correlative analysis of data that were included in the top of the most revealed that the distribution of this attitude problematic factors. is influenced significantly by the incorporation year of the enterprise. Thus, enterprises Hence, the outcomes of the EESE survey do established after 2005 are stressed 20% more not confirm some of the indicators estimated by the tax administration compared with by the World Bank in this area, in particular the enterprises established before 2000, of which “Ease of Doing Business Rank”, used above for only 47.1% regard it as an important constraint. comparison with other countries. The size and location of the enterprise and their type of activity have not influenced the distribution of these opinions at all.

28 Figure 16. Distribution of answers to the question “Is the fiscal administration (calculation, recording and payment of taxes, reporting, etc.) a constraint for the enterprise development?” by the year of establishment

Source: EESE business survey

According to EESE survey results, the “tax service. Thus, the elimination of any type of administration” ranked the 11th in the top difficulties met by enterprises, in regards to of the most problematic factors for the taxation, including the “adaptation” to the development of enterprises in Moldova. changing requests of the legal framework, in Beyond this ranking based on the perceptions on the shoulders of the providers. of the enterprise leaders, we do not have Therefore, we must consider the following to forget about the connection between particularities while assessing the importance many enterprises and corruption or informal of fiscal administration as a problematic factor economy. These enterprises in particular for the development of enterprises. cannot appreciate the fiscal administration as “unequal”, since inequity is a specific state, One of the biggest constraints for the exclusively experienced by the victims or development of enterprises is the fiscal the entities disadvantaged by the respective burden, which due to its size, ranks second in phenomenon. Acts of corruption or bribing the top of problematic factors, after political are rarely isolated. Most of the times, they instability. It is regarded as a strong or very represent the expression of a long-term strong constraint by 68.8% of the interviewed relationship established between the involved businesses. This opinion is less frequent in actors, where each actor commits to a wide enterprises from outside the capital city, as range of “arrangements”, similar to a complex well as among the ones involved in trade.

29 Figure 17. Distribution of answers to the question “Is the fiscal burden (the value of direct and indirect taxes) a major constraint for enterprise development?”, depending on the location of the enterprise

Source: EESE business survey

The burden created by mandatory shares absorb a large part of revenues in contributions for social and health insurance is the case of enterprises with a lower profit a strong constraint for enterprise development margin. As one of the respondents explained in the vision of 52.2% of respondents. On the (manufacturer of agricultural goods), “it is other hand, for 47.3%, it is not a very tough almost impossible to offer local agricultural constraint. It is interesting that the enterprises products on the market at competitive prices located outside the capital city regard social while importers exactly respect the legal and health insurance as a major problem in requirements and taxes.” That is why, rural 67.2% of cases, compared with only 44.9% enterprises need to operate mostly with cases - for the enterprises from Chisinau. This cash from their activity – only in such a way result can be explained by the considerably they could reach profitability and ensure lower profitability of enterprises from the competitiveness. We would like to remind territory, especially those in agriculture. Due you that in the EESE survey sample, farms and to their non-correlation with the enterprise’s enterprises with less than three employees profitability, the social and medical insurance were not included.

30 Figure 18. Distribution of answers to the question “Is the level of state social and medical insurance premiums a constraint for the development of your firm?”, depending on the firm location

Source: EESE business survey

Fair competition authority, accountable to the Parliament, which ensures the enforcement and compliance with In order for the private sector and sustainable the legislation related to competition, state enterprises to develop and grow, it is aids and publicity. The Council is invested with important to have and protect fair competition the power to issue decisions, to regulate, ban, rules, including those ensuring respect for intervene, inspect and sanction, within the labour and social standards. In addition, anti- limits of the law. According to article 94 of the competitive practices at the national level must Competition Law, the normative acts for the be eliminated. In July 2012, the Parliament implementation of these legal provisions were of Moldova adopted the new Europeanized supposed to be adopted by the Competition Competition Law with the objective of aligning Council within 6 months since the publishing the internal competition legal provisions to the of the law, thus by March 14, 2013. The EU legislation on Competition Law. The piece adoption of these normative acts, and the of legislation entered into force 14 September overall reform of the institution, initiated back 23 2012. According to this law, the National in 2012, was stopped by the political crisis of Agency for the Protection of Competition the Republic of Moldova in the first months (NACP) is reorganized into the Competition of the current year. It resumed its activities Council. According to new legal provisions, the only recently, after the Parliament managed to Competition Council is an autonomous public appoint the management of the Council and 23 Turcan Cazac. 2012. Legal Update: Moldovan Competition its organization structure. Law Reformed and Aligned to EU Standards. Turcan Cazac Law Firm News, 20 July. Accessed 4 May 2013.

31 Figure 19. New businesses density in Moldova and comparator countries, the period 2004-2009 New Business Density 10 Moldova Bulgaria 8 Estonia Lithuania 6 Romania Slovenia 4 World working age people age working 2 Newly registered companies per 1,000 companies registered Newly 0 2004 2005 2006 2007 2008 2009 Source: World Bank’s Entrepreneurship Survey (World Development Indicators Online).1

1 Data for Estonia for the years 2007 and 2008 is not available. In order to gauge the level of competition, comparison over the period 2004-09 (Figure the “New Business Density” index is used 19). In the latter year, the number was as low internationally indicating the number of as 1.32, which is a decrease from 2007 when newly registered, limited liability companies the number peaked at 1.93. In 2009, Lithuania per 1,000 working aged people (15 to 64 years reflected the next lowest rate at 2.18, and old) in a given year. For Moldova this index has Estonia registered the highest at 8.1. The world remained the lowest of the countries used for average for that year was 3.16.

Figure 20. Intensity of local competition index in Moldova and comparator countries, the period 2008-2012

Intensity of Local Competition Index 6 Moldova Bulgaria 5.5 Estonia Lithuania 5 Romania Slovenia Scale of 1 to 7 of 1 to Scale 4.5 World

4 2008 2010 2011 2012

Source: World Economic Forum Executive Opinion Survey, The Global Competitiveness Report.

Another pointer for fair competition is the local competition is perceived as mild, but “Intensity of Local Competition Index” that relative to countries used for comparison, it measures the level of competition in local is the weakest in the group. The situation has markets from 1 to 7, with 1 standing for limited also worsened in recent years, where the score competition and 7 reflecting a very intense for Moldova decreased from 5.1 in 2008 to 4.2 competition in most industries. In Moldova, in 2012 (Figure 20). 32 Figure 21. Effectiveness of antitrust policies in Moldova and in comparator countries, the period 2010-2012

Effectiveness of Anti-monopoly Policies 5 Moldova Bulgaria 4.5 Estonia Lithuania Romania 4 Slovenia Scale of 1 to 7 of 1 to Scale World 3.5

3 2010 2011 2012

Source: World Economic Forum Executive Opinion Survey, The Global Competitiveness Report.

The “Effectiveness of Anti-Monopoly Policy “ Market Dominance Index” indicates whether Index reflects the level of efficiency of antitrust corporate activity is dominated by only a few policy in promoting competition on a scale business groups or spread among many firms, from 1 to 7 with higher values corresponding to in a range of values from 1 to 7 with higher better performance. Again, Moldova performs values corresponding to more firms. The value the weakest relative to other countries used for for Moldova in this regard has decreased over comparison over the period 2010-12 (Figure the period 2010-12, moving from 3.25 in the 22). In 2012, Moldova scored 3.2, Romania former year to 3.02 in the latter. Additionally, scored the next lowest at 3.4, and Estonia all countries outperformed Moldova in 2012. registered the highest with 4.5. The “Extent of

Figure 22. Extent of market dominance in Moldova and comparator countries, the period 2010-2012

Extent of Market Dominance 4.5 Moldova 4.25 Bulgaria Estonia 4 Lithuania 3.75 Romania 3.5 Slovenia Scale of 1 to 7 of 1 to Scale World 3.25

3

2.75 2010 2011 2012

Source: World Economic Forum Executive Opinion Survey, The Global Competitiveness Report

33 The EESE survey studied a series of aspects are monopolies in their sector of work. related to competition among Moldovan Nevertheless, 31.7% of respondents claim that businesses, including the issue of monopolies there are monopolistic practices in their area and their regulation, access to Government of activity. It is interesting that this opinion programs for SME support, political interferes is shared more often by representatives of in business, informal economy. micro-enterprises (up to 10 employees): in 35.9% of cases, compared with 25% of large Unfair competition enterprises. It is worth noting that a large share (60%) of the surveyed enterprises do not feel there

Figure 23. Distribution of answers to the question “Are there monopolies or antitrust practises in your activity sector?”, depending on the number of employees, %

Source: EESE business survey

The perception of the monopoly is slightly Most of the respondents - 52.2% - have different, depending on the type of activity nevertheless abstained from expressing their the enterprise in engaged in. Thus, the group opinion, recognizing that they do not have an representatives for “Agriculture, industry, opinion in this respect. More respondents had transportation and construction” report an opinion on the legislation on combating a less frequent presence of monopolistic unfair competition: only 30.2% of them have practices in their sectors of activity, abstained in giving an answer, while other compared to respondents of the “Trade” 59.5% regard it as inefficient, in particular the group (33.8%/28.6%). Perhaps, this is due to companies involved in trade. This perception the existence of a quantitative restriction of is due especially to the fact that after the exports of agriculture products, introduced adoption of the new competition law in in order to ensure the food security of the September 2012,, the functionality and the state. The type of activity, age and location of activity of the Competition Council were enterprise does not significantly influence the affected by the delay required to approve the distribution of this perception. new structure in the Parliament. At the same time, 41.4% of businesspeople An important share of respondents - 54.6% regard the anti-trust legislation as inefficient - believes that the current legal framework in combating or controlling this phenomenon. is disadvantageous for small enterprises. It

34 is interesting that this opinion is by far more for the companies to be able to benefit of frequent among micro-enterprises than governmental support programs. Only 28.8% the small ones: 63% and 47.2% of the cases, of them believe that this is not a decisive respectively. At the same time, it is less frequent criterion for an enterprise to be included on among enterprises located outside the capital these lists of beneficiaries. It seems that here city than among those from Chisinau. Other again, the opinion of the manager varies factors did not influence the distribution of according to the size of their enterprise: 67.4% this opinion. representatives of micro-enterprises gave high importance to political connections, versus Political connections only 45.8% of enterprises with more than 50 59.5% of the interviewed businesspeople employees. believe that political connections are needed

Figure 24. Distribution of answers to the question “How important is for enterprises to have po- litical connections in order to benefit from Governmental support programs”, depending on the number of employees, %

Source: EESE business survey

The Government’s attitude towards investors 22.9% of the interviewed enterprise managers was always of interest for Moldovan perceive the Government’s favours for investors businesspeople. Public policies aimed at as impartial. But one third of respondents attracting investments are good if they abstained from expressing their viewpoint encourage any potential investor, both local on this, which are perhaps those who do not and foreign. 38.1% of respondents believe that see themselves in the role of investors, and the Government favours foreign investors at the therefore are not interested in this issue. The expense of the local ones. Only 13.2% believe enterprises established after 2005 feel more that local investors are favoured, perhaps due disadvantaged in comparison to the foreign to the above-mentioned political connections. investors, as opposed to older ones.

35 Figure 25. Distribution of answers to the question “How do you think foreign investors are treated by the Government as compared to domestic ones? %

Source: EESE business survey

Informal economy as it is for its representatives, it is perceived as dangerous for the enterprises that tend Besides the tension related to monopolies to operate within the legal framework and, and political connections, another factor overall, for the development of enterprises influencing competition on the Moldovan and national economy. market is the informal economy. As profitable

Figure 26. Distribution of answers to the question “Does your company face unfair competition from companies operating informally”, according to the activity type, %

Source: EESE business survey

36 43.9% of the surveyed enterprises claim to improvements in policies for infrastructure be affected frequently by unfair competition development, largely in line with EU policies from the various forms of informal economy. and requirements. This is true for roadways, The most affected by this phenomenon are aviation, waterways, and energy.24 However, the trade enterprises with 57.1% of cases, and in 2012, infrastructure in Moldova was rated the least affected are the enterprises from the at only 3.3 out of 7 by local business leaders, “services, professional activities and others” according to the World Economic Forum category with 29.7% of cases. At the same Opinion Survey. time, a significant difference between other While secondary data show that the quality of two groups was identified: the enterprises the Moldovan infrastructure is not particularly established during 2000-2005 are facing bad, due to the fact that the percentage of competition of the informal economy in paved roads is high relative to other countries 54.2% of cases, if compared to only 35.6% used for comparison, we should not forget, of enterprises established after 2005. The however, that the intensity of the population older enterprises are situated in the middle, and of communities in Moldova is higher than thus we cannot say that age immunizes or in other states. In 2010, 86.2 per cent of roads exposes the enterprise to this factor in a larger in the country were paved, compared to just manner. First of all, it is clear why some trade 17.9 per cent and 29.3 per cent in Estonia and enterprises are more affected than service and Lithuania respectively. In Bulgaria and Slovenia professional activities ones. Most consumer nearly all roads are paved. No improvements goods are merchandised on public markets are apparent in this regard in Moldova over the by patent holders, who rarely have documents period 2003-2010. In January 2010 however, in to confirm the origin of merchandise, and also an effort to improve road infrastructure, the no custom duties, because their merchandise government began allocating half of the fuel is brought in small batches to avoid the excise tax revenues to a road fund.25 customs control. This allows them to establish more attractive prices for their goods, which Like the other countries used for comparison, considerably affects sales of commercial units Moldova performs well in ensuring wide and enterprises that practice higher prices, access to potable water, where 96 per cent of due to the regular payment of import taxes the population had access in 2010, up from 94 and of sale or merchandise. per cent in 2003. On the other hand, only 19.1% of the “Electric Power Consumption” measures the interviewed producers recognized that the production of power plants and combined enterprises of the sector their represent use heat and power plants less transmission, quite often suppliers or contractors from the distribution and transformation losses, and informal economy. It is easy to understand own use by heat and power plants. Electric that enterprises with more than 50 employees power consumption in Moldova is low use such suppliers and contractors less often. compared to other countries, but has increased between 2009 and 2010. In the latter year, 2. Physical infrastructure Moldova recorded a level of 1,049.1 kWh per The development of sustainable enterprises capita, compared to the next lowest, Romania, critically depends on the quality and quantity which registered 2,392.3 kWh, and the largest of the physical infrastructure available, such as consumer in that year, Slovenia, with 6,521.1 physical facilities and transportation systems. kWh per capita. In addition, consumption Access to water and energy also plays a levels have decreased in Moldova over time, pivotal role. Moldova has made significant 24 European Commission. 2011. 25 Ibid. 37 dropping from 1,435.7 kWh per capita in 2004, is a , the “Quality of Port to 1,049 kWh in 2010. In 2009, Moldova covered Infrastructure Index” is meant to represent less than 30% of its demand (2009: 3,200 GWh) how accessible port facilities are, using a scale with domestic electricity generation (2009: from 1 to 7 with higher values indicating better 866 GWh). This is due to a lack of the total performance. Moldova has slightly improved available generation capacity and the high in time reaching 3 in 2012. Of the countries generation cost of the existing capacity. In used for comparison, only Romania registered recent years, electricity was either imported a lower score than Moldova this year, at 2.6. from Ukraine or Transnistria. In 2007 and 2008, The problem of the physical infrastructure was approximately 3000 GWh were imported covered by the EESE survey only generally, in from Ukraine. In 2009 Moldova switched terms of costs and impact, without getting suppliers and imported about 3000 GWh from into more concrete technical or descriptive 26 Transnistria. details. The “Quality of Overall Infrastructure Index” Access to physical infrastructure is one of the reveals whether a country’s infrastructure is most important factors that determine the underdeveloped or extensive and efficient emergence and development of an enterprise. based on a range from 1 to 7 with higher Lack of access to the key elements of physical values indicating better performance. infrastructure, or their inappropriate quality Over the period from 2008-12, Moldova makes it impossible to physically perform consistently rose in the index, reaching 3.3 in ones activity or may generate such costs that the latter year. This is higher than the value will decrease significantly the enterprise’s recorded for Romania in the same year, equal competitiveness: 72.2% of the surveyed to that of Bulgaria, and lower than those for enterprises report the significant costs Lithuania, Estonia and Slovenia. As Moldova incurred by the enterprise because of the 26 Zachmann, G. and Oprunenco, A. 2010. Electricity Sector underdeveloped or inappropriate physical in Moldova: Evaluation of strategic options. Policy Paper Series infrastructure. The costs are negligible for 01/2010. German Economic Team in Moldova, September. Ac- cessed 27 May 2013. 23.4% of enterprises only.

Figure 27. Distribution of answers to the question “How big are the costs incurred by your firm as a result of poor physical infrastructure (roads, aqueduct, electricity, gas etc.)?”, depending on the number of employees, %

Source: EESE business survey

38 As expected, the enterprises outside the Nevertheless, recently some big investments capital city incur more frequently high costs were made in physical infrastructure, segments due to infrastructure: 86.6% of them, versus of national roads were reconstructed or 65.2% of enterprises from the capital city. At repaired; these are insignificant compared the same time, the enterprises with more than to the necessary ones. That is why 87.8% of 50 employees are significantly more affected respondents claim that their impact was not by the infrastructure than micro-enterprises. significant on the activity of their enterprise. Although not too many in the sample - Only 6.9% of the surveyed managers regard only 11 units - all agricultural enterprises their impact as significant. However, it report significant costs due to poor quality should be noted that the sample of surveyed infrastructure. And last, only 40% of enterprises was too small to reveal the impact enterprises from the “professional, scientific of scattered local investments. and technical activities” category are affected by infrastructure-related costs.

39 Social elements

1. Education, training and lifelong attainment is consistently the lowest in learning comparison. The “” measures the educational attainment on a scale from The development of a skilled workforce and 0 to 1 with higher values indicating better the expansion of human capabilities through performance. Over the period 2006-11, high-quality systems of education, training Moldova maintained stable, high values, and and lifelong learning, are important for helping only fell marginally in 2012, moving from 0.72 workers find good jobs and enterprises to find in 2011 to 0.67 in 2012. However, all other the skilled workers they require. Moldova’s countries used for comparison recorded educational system is one of the main sectors higher values over the period 2006-12. The where corruption is perceived as widespread. rate for youth aged 15-24 in Moldova In particular, one study found notable is notably high, at 99.5 per cent in 2010, financial irregularities and non-transparency compared to the world average of 89.6 per in the disbursement of public funds within the cent in the same year. Similar percentages are 27 education system. recorded for the compared countries, where Data on “Public Spending on Education” is Estonia, Lithuania and Slovenia recorded the scanty for the countries compared. However, highest level at 99.8 in 2010, and Romania the it is clear from the limited data that Moldova lowest with 97.3. performs markedly better than other countries In Moldova, there are substantial gaps used for comparison, and is also well above in financing between the different levels 28 the world average over the period 2006-09. of education, where general compulsory In 2009, public spending on education in education is directed almost 50% of the funds, Moldova peaked at 9.51 per cent of GDP, the which are inefficiently used, while less than 10% highest of all countries compared for that year. goes to secondary vocational education. This However, in 2010 and 2011 the percentage level of funding is insufficient for modernizing has somewhat decreased. This may be due to the system and training specialists for the stricter regulations to curb alleged corruption labour market. Similarly, the lifelong learning in the educational system. concept, and in particular, distance learning, Although Moldova allocated more funding to are underdeveloped in Moldova.29 education than other countries, educational 27 Freedom House. 2012a. 28 World Bank, World Development Indicators, Public Spend- ing on Education available at http://databank.worldbank.org/ data/home.aspx. 29 Institute for Development and Social Initiatives. 2009.

40 Figure 28. Share of firms offering formal training in Moldova and comparator countries, the years 2002, 2005 and 2009 Firms Offering Formal Training 100 Moldova 90 Bulgaria 80 Estonia 70 Lithuania

60 Romania Slovenia % of firms 50 40 30 20 2002 2005 2009

Source: World Bank, Enterprise Surveys and World Development Indicators Online.

Concerning the percentage of “Firms Offering 2. Labour force Formal Training” to their permanent and full- When asked about the most important time staff, despite limited data, it is clear that competencies and skills that their employees Moldova has experienced a sharp decline should have, the managers of the surveyed since 2002, moving from 70 per cent of firms enterprises names about 60 versions of in that year, to just 33.1 per cent in 2009. qualities, competencies and skills, which could Of the six countries used for comparison, be categorized in two large groups, as follows: Moldova outperformed Romania and Bulgaria in 2009, while Estonia recorded the highest •• General and personal characteristics: percentage in that year, at 69.3 per cent. The health, general culture, intelligence, “Extent of Staff Training” indicates whether logical thinking, objectiveness, companies in a country invest little or heavily attention to details, rationality, ethics, in training and employee development to team spirit, initiative, responsibility, attract, train and retain staff, on a scale from kindness, hygiene/aesthetics, flexibility, 1 to 7 with higher values indicating more trustworthiness, honesty, discipline, investments. Moldova reflects stable, but punctuality, skilfulness, energy, relatively poor performance in this regard over sociability, spirits, ethics, to talk little, the period 2008-12, maintaining values of 3.3 talented, hardworking, serious, honest and 3.2. In 2012, Moldova recorded a value of etc. 3.2, underperforming all countries used for •• Knowledge, professional competencies comparison with the exception of Bulgaria, and work abilities: commitment to for which data was unavailable for in that year. work, experience, creativity, marketing The world average for the same year was 3.9. thinking, knowledge of the products, Issues related to the sufficiency and quality client orientation, contract management, of the labour force, as well as to education fast learning capacities, foreign and training were analysed in detail for the language skills, ability to work with enterprises sampled for the EESE survey. the computer and to utilize advanced technologies, , efficient communicator, public speaking 41 abilities, persuasive qualities, conflict structured of a variety of general and personal solving capacities, capacities for work/ characteristics, which cannot be evaluated at professionalism, ability to certificate the moment of hiring, only during the activity. competencies, knowledge of the area, Often, enterprises are looking for exact respect for the employer, the desire to profiles that are much under the necessary develop the country’s economy, work level to attract and maintain such employees. quality, studies in the area, loyalty for the The largely spread practice of hiring without company, the desire to learn, interest, a work contract is an argument in this regard. continuous personal training, non- According to the respondents’ answers, mainstream thinking, capacity to collect 46.8% of enterprises encounter difficulties in and analyse information, capacity to employing staff with the desired competencies work with large amounts of data etc. and skills on a frequent or systematic basis. The numerous and diverse “competencies” Other 47.3% encountered such difficulties very listed by the respondents reflects the somehow seldom. Here the enterprises with other 50 individualized and at the same time complex employees have the most problems: 54.2%of character of the profiles which are coveted them had to deal with such difficulties, by leaders and managers. The interesting fact whereas other 37.5% from this group were is that the profile of an “ideal employee” is exempt from such problems.

Figure 29. Distribution of answers for the question “During the last three years, have you encoun- tered difficulties in finding personnel with appropriate abilities and competences?”, depending on the number of employees, %

Source: EESE business survey

Enterprises from the sector of “agriculture, severe consequences. Various components industry, transport and constructions” or aspects of the enterprise’s activity, and encountered significant difficulties with the generally, the development of the enterprise employment of qualified staff in 52.9% cases, may be negatively affected. The impact versus 41.3% of trade enterprises. Other factors analysis revealed that the shortage of qualified did not influence the distribution of answers. workers most often impacts: the enterprise’s The shortage of qualified workers for the development (44.4%) and the ability to satisfy needs of the enterprise may sometimes have the demand (28.3%). The other components of 42 activity were affected to a lesser extent, such as (38.1%). The size of the enterprise has also production of goods or services, ensuring the influenced the exposure to these negative quality of goods/services, operational costs, effects due to the negative effects of the development and technological innovations. shortage of workers: the strongest affected In general, 46.3% of enterprises were somehow were the large enterprises – in 58.3% of cases, affected by the shortage of workers. According compared to only 40.2% of micro-enterprises. to types of activities, enterprises from the With regards to location, enterprises out of “agriculture, industry, transportations and Chisinau were the most affected (52.2%), constructions” were mostly affected (57.4%), compared to those out of the capital (43.5%). while “trade” ones were the least impacted

Figure 30. Distribution of answers to the question “Did the shortage of employees impede the activity of your enterprise?”, depending on the number of employees, %.

Source: EESE business survey Enterprises have different strategies to The training of employees is a rather complex overcome the shortage of qualified workers issue and, in addition to time or financial and, respectively, decrease its negative impact resources, it requires a specific capacity of on their activity, but most often they have enterprises in this regard. There are various to assume the difficult task of training the factors that may hamper on-the-job training staff, at least in the key areas. Thus, 65.4% of of employees and the main ones were the interviewed managers confirmed that identified through a focus group conducted their staffs were trained quite often by the in March and were later included in the survey enterprise. Only 4.9% of enterprises have never questionnaire. The most frequent factor trained their staff. Micro-enterprises train identified by respondents (30.7%) was the their staff the least often. Microenterprises lack of funds for training. However, according provide the least number of trainings to their to work legislation provisions the employer employees: 38% of employers admitted that has the right to allocate 2% of its payroll to they either never offered training or only very educational purposes, expenses that are rarely. It should also be noted that companies deductible. Beyond this margin, the employer with more than 50 employees provide slightly will pay taxes for such expenses. more trainings to their employees (71.3%) as The second factor reported by company compared to other smaller companies. managers in 27.3% of cases is the high 43 fluctuation of employees. Enterprises seem with working conditions and wages good to have little control over staff fluctuations. enough for them to remain with the company They cannot force employees to stay with a after having improved their skills. Such an company after they were trained. In recent approach is affordable only to a small number years, some companies used to add a clause to of enterprises. the employment contract concerning the duty High fluctuation of employees and their of the employee to reimburse training costs if reluctance to be trained – both of these the employee leaves the company. However, problems are more common for enterprises this is not perceived as an effective tool against outside the capital city. relevant risks. According to interviews, the most effective tool is to provide employees

Table 2. General answers to the question “To what extent do the following factors impede the training of employees in your company?” Is an impedi- Is not an im- Don’t know/ Total ment pediment not applicable N % N % N % N % Lack of funds for training 63 30,7 134 65,4 8 3,9 205 100,0 Lack of relevant courses/ trainers 50 24,4 146 71,2 9 4,4 205 100,0 Employees’ reluctance 52 25,4 145 70,7 8 3,9 205 100,0 High turnover of employees 56 27,3 137 66,8 12 5,9 205 100,0 Lack of time for training 36 17,6 159 77,6 10 4,9 205 100,0 Source: EESE business survey

Another major problem in this respect is Economy), PNAET (the National Programme training costs available on the market, which for Economic Empowerment of Youth) and the are unaffordable to 40.4% of enterprises. Other GEA (Efficient Management of Business), also 36.8% of enterprises can afford such training those organized by the Centre of Continuous costs, as reported by respondents. These costs Instruction of the Chamber of Commerce and seem mostly unaffordable to microenterprises Industry of the Republic of Moldova. All these and enterprises located in the capital city (as programs are implemented with the support compared to those outside the capital city). of the external development partners. The existence per se of governmental Two thirds of the surveyed companies carry training programmes is acknowledged by out periodic assessments of current and future merely 20% of the respondents. For the other skill needs. As expected, this procedure is more 56.3% of enterprises, governmental training frequently performed by larger enterprises programmes seem non-existent. and less frequently by microenterprises. In this context, we could note that the Almost 57,6% of enterprises do not have a representatives of the Moldovan business have budget for training. This indicator is closely knowledge of the programs implemented by related to the number of employees in the ODIMM (the Organization for the Development company (those with fewer employees have of Small and Medium Enterprises) within the budgets in less cases) as well as to the age of Ministry of Economy, which implies instruction the company (older companies have budgets components, for example PARE 1+1 (the more often). Program for attracting remittances in the 44 Figure 31. Distribution of answers to the question “Does your company have a budget for trai- ning?” depending on the number of employees, %

Source: EESE business survey

Largely, the shortage of skilled labour public wages to compensate for losses in stems undoubtedly from the deficiency of remittances and private sector wages. Though national educational policies, as well as the unsustainable, these temporary measures macroeconomic situation. It seems that allowed the country to protect its poor and is highly uncorrelated avert the projected increase in poverty rate.30 with the needs of the real economy. As many The cost of social protection is on an upward as 69.2% of surveyed business people felt that trend, and in 2008, it had reached 30 per vocational education and secondary special cent of the total expenditures of the national education do not generally meet the needs public budget and represented 12 per cent of of companies in the country. Only 21% of GDP. Unlike the national public budget, the respondents agreed that education sectors state social insurance budget (SSIB) performs meet the real economy‘s needs. The same well, resulting in a budget surplus in 2008. is true for the higher education in Moldova: Despite this strong performance, as a result in 67.8% of cases the answer was negative of the contraction of national public budget whereas in 23.9% of cases it meets the needs. revenues, the return of some 40 thousand 3. Labour Code and Social Protection emigrants, and the increase in unemployment and the number of vulnerable people, the Providing citizens with access to key services, state social insurance budget could turn into a such as quality health care, unemployment deficit of unprecedented levels.31 benefits, maternity protection, and a basic pension, are key to improving productivity. Secondary information on social protection Protecting workers’ health and safety at the in Moldova is largely unavailable or scanty. workplace is also vital for sustainable enterprise Considering data on “Public Expenditure on development and productivity gains. Moldova Health” as a percentage of GDP over the period boasts an extensive social protection system 2002-11, a positive trend is apparent here, with with both non-contributory and contributory expenditure levels rising from 4 per cent in the social benefits. In 2009, in spite of the global former year to 5.2 per cent in the latter year. 30 World Bank. 2013. Country Program Snapshot, World Bank crisis, the Government of Moldova raised Group – Moldova Partnership. World Bank Group; Republic of pensions, social assistance benefits, and Moldova, April. Accessed 4 May 2013. 31 Institute for Development and Social Initiatives. 2009. 45 In 2011, of the countries used for comparison, rate of 6.6 per cent. The world average for that only Slovenia outperformed Moldova with a year was 6 per cent.

Figure 32. Public expenditures on health in Moldova and comparator countries, the period 2002-2011

Public Expenditure on Health

7.0 Moldova 6.5 Bulgaria 6.0 Estonia 5.5 Lithuania Romania 5.0 Slovenia

% of GDP 4.5 World 4.0 3.5 3.0 2002 2004 2006 2008 2010 2011

Source: World Bank data online ESEE survey showed that 44.9% of business the Labour Code is sufficiently adjusted. At the representatives believe that provisions of the same time, 58.6% of the respondents believe Labour Code, particularly those relating to that the Labour Code provides a favourable employment, remuneration and dismissal, framework for the efficient management are not sufficiently adjusted to the market’s of human resources. Other 36.6% of the needs. Other 47.3% of respondents think that respondents think that it is unfavourable.

Figure 33. Distribution of answers to the question “Do you consider that the Labour Code provisi- ons (employment, remuneration, firing etc.) are well adjusted to the market’s needs?”, depending on the number of employees, %.

Source: EESE business survey

46 Apparently, the results of the survey confirm enterprises that “learned to avoid” the legal that the Labour Code contains several out- framework, the Labour Code is not an obstacle, dated aspects, which create several issues, which explains the results of the survey. especially for those enterprises, which conduct Another similar assessment to the above, their activity according to the provisions of the shared by 39% of respondents is that the legal framework. Even though the ESEE survey “Labour Code provides excessive protection has not explicitly tackled these sensitive of employees and employees association, thus subjects on the activity of the enterprises, being an obstacle to the development of the phenomena such as double accounting, enterprise. Other 54.1% of respondents have hiring employees without a contract, or stated an opposite opinion in this regard. The different salaries than the one established by analysis of the correlation of this attitude with contract, and other practices, are well known the size of the enterprise has shown that larger and vastly practiced in the Moldovan business ones are more critical than the smallest ones environment, especially in small and medium regarding the Labour Code. enterprises, which compose the largest part of our sample. Therefore, it is likely that for the

Figure 34. Distribution of answers to the question “Do you consider that the Labour Code provi- des an excessive protection for employees and trade unions, hampering the firm’s development?”, depending on the number of employees, %.

Source: EESE business survey

Membership to an employee association is Standards on health and security at the work seen as a “major problem for the development place applied in Moldova are appreciated as of the enterprise” by 10.3% of respondents, adequate and practical for enterprises by 68% while other 63.4% - do not see it as a problem. of respondents, mostly by the representatives However, this perception is understandable, of larger enterprises. Other 22.4% of since the existence of employee associations respondents don’t consider these as being has been reported in only 13.4% of the adequate and practical. researched enterprises.

47